Gov't eyes private investment in railways

Update:
May, 04/2015 - 09:31

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Ha Noi railway station. — File Photo

by Thien Ly

At a meeting a fortnight ago Minister of Transport Dinh La Thang revealed that property giant Vingroup had offered to buy Ha Noi, Sai Gon, and Da Nang railway stations and replace them with modern stations elsewhere in the three cities to ease pressure on their downtown areas.

Also at this event, a representative of the Sun Group said the company wanted to buy key railway routes like Ha Noi-Da Nang, Sai Gon-Da Nang, and Ha Noi- Lao Cai.

He also said the company was ready to invest in 20 luxury coaches for its clients whether or not the other deals go through.

Such plans by private companies to invest in the railways are in response to the government's policies allowing various economic sectors to invest in the rail sector to modernise it and ease the burden on public funds.

According to the Viet Nam Railway Corporation (VRC), in 2011-15 it had to spend VND7 trillion (US$352.58 million) to upgrade the network and introduce new technologies to manage the operations.

By 2020 an estimated VND2 trillion ($.93.02 million) more is needed for continued implementation of these plans and VND60 trillion ($2.79 billion) for 12 projects to modernise the main routes.

The Government's pockets are not deep enough to be able to afford these huge sums.

Besides the shortage of funds, the railways also suffers from a lack of competition, which many insiders believe is the main factor in its poor development over the years.

The existing mechanism only allows State firms to develop rail infrastructure and offer related services, and this is where the lack of competition has an adverse effect.

The railways only generates revenues of around VND400 billion ($18.4 million) a year but runs up expenditure of VND2 trillion ($92 million).

Thus soliciting investments from various sections of the economy, including private companies, is a fait accompli.

The railways plans to sell to private firms the right to operate some northern routes like Lao Cai- Ha Noi-Hai Phong and Kep -Ha Long-Cai Lan and the right to develop transport infrastructure facilities such as unloading equipment, train stabling yards, and warehouses at three stations – Yen Vien (Ha Noi), Dong Dang (Lang Son Province) and Song Than (Binh Duong Province).

The firms will be allowed to invest in facilities to serve the transportation of goods by rail, focusing on cargo yards, storage, cargo-handling equipment, and warehouse management systems.

Decree No.15 issued last January, which regulates investments under the public-private partnership (PPP) method, has opened up more opportunities for the private sector to participate in many sectors including those that were earlier the preserve of State firms – like infrastructure, electricity, water, education, transport, health, and the environment.

The decree is a prerequisite for infrastructure projects, especially in the transport sector, to be implemented better.

To ensure rail projects are attractive for the private sector, the VRC itself has drafted a preferential mechanism and policies designed to mobilise all available resources in society.

The private sector seems to perceive the great potential of the railways and the fact that it can both earn profits and help improve the sector.

But investors want the transport ministry to help tackle obstacles caused by procedures and regulations.

Some of them have asked the ministry for the right to decide train schedules and even the length of time they have to stop at stations.

They said the ministry should organise auctions in line with the current laws to sell assets or the right to operate services to investors.

Expecting prices to fall

Since 2013 Vietnamese consumers have been expecting prices of cars imported from ASEAN member countries to fall once import duties started to come down in 2014 from 60 per cent earlier.

They expect a precipitous decline by 2018 when automobile import tariffs are abolished.

By their calculation, after the tax fell to 50 per cent last year, the price of a car should have been down by around US$1,650.

But nothing of the sort has happened, with prices remaining unchanged or even going up.

Vehicle importers claim that the prices of vehicles are based not only on import tariffs but also many other factors like transport costs and exchange rates and so they cannot reduce prices of imported vehicles even when the tariff is cut.

But this claim sounds hollow since all other costs are a constant regardless of the tariff and the cost does come down if the tariff falls from 60 per cent to 50 per cent.

Analysts point out a more plausible reason – the fact that most automobile companies in the country not only build cars but also import them, and do not want imported cars to undercut their products.

Car prices in Viet Nam are always much higher than in other markets in the region because of a conscious Government policy to keep their numbers down. There are as many as 10 taxes and fees that go into the retail prices of cars. This means that if the import tariff falls in accordance with the country's commitments, other fees and charges are likely to be hiked.

The government is also aware it needs to provide opportunities for domestic auto companies to develop and protect them from the imminent overseas invasion.

A representative of the Viet Nam Automobile Manufacturers Association, who asked not to be named, said car prices would not change this year since the import tariff remained as it was in 2014. — VNS